Thursday, July 11, 2013

Gujarat seeks cut in tariffs for solar power plants

After rolling out red carpet for investments, the state govt plans to back out of high tariffs contracted for nearly 1,000 MW of solar plants.

NEW DELHI: Narendra Modi's Gujarat government, lauded by India Inc for being business friendly, has stumped industry as it seeks to back out of the high tariffs contracted for nearly 1,000 MW of solar plants of the Tatas, GMR, Adani, Bollywood star Ajay Devgn, Lanco and others.Industry leaders said the move was shocking as it raised issues about the consistency of the state's policy, but the business-savvy Gujarat government is tossing back to corporate bigwigs a dose of their own logic: If companies can go to the regulator to raise tariffs for plants using imported coal on the ground that input costs rose unexpectedly, the state's utility companies can also seek regulatory intervention to reduce tariffs from 12.54 per unit to 9 on the ground that the cost of building these plants was unexpectedly lower than what was envisaged when the tariff was fixed.

The Modi government took a giant leap in solar power after rolling out the red carpet for entrepreneurs at the Vibrant Gujarat Summit four years ago, and signed 88 solar power purchase agreements with 75 developers for 25 years with tariff as high as 12.54 per unit without any competitive bidding. This brought in investment of nearly 15,000 crore from a spectrum of investors ranging from real estate developers to a bollywood star.In April 2012, Modi himself inaugurated series of solar projects in the state with much fun fare, but this has huge financial implications for the utility - Gujarat Urja Vikas Nigam Ltd (GUVNL), which is profitable, unlike state distribution firms in most states. Recent bids for solar projects under the national solar mission attracted bids as low as 7.50 per unit."We are paying high cost of being early entrant in solar space. However, if private players like Tata and Adani can approach the regulator and even the Prime Minister to prevent their thermal plants from making losses, the government of Gujarat too has a right to renegotiate its solar power purchase agreements," said an official with energy department of Gujarat government. Sighting the higher cost of coal, Tatas and Adanis are seeking higher tariff for their power projects that will generate 1,900 MW and 1,000 MW, respectively.Gujarat's petition before the regulator has shocked investors who expected handsome profits from these projects. "The plea for reducing tariff will affect the credibility of Gujarat government since investors will always be apprehensive about the consistency of policies and integrity of agreements in the state," said one of the project developers. Another investor said that the electricity regulator is empowered to open GUVNL's power purchase agreements and hence arguing case is the only option.GUVNL has approached the regulator with a plea to reduce tariff from 12.54 per unit to 9 to cut its payment liabilities. It is arguing that the state agreed to pay tariff of 12.54 per unit based on the then available perception that the project cost would be about 16.50 crore per MW. However, the project developers invested only 11-12 crore per MW and less than 30% equity, the utility has told the state's electricity regulator in a petition."The above would mean that the project developers are receiving the levelised tariff of 12.54 per unit as against around 9 per unit which is the reasonable and prudent tariff. This difference of 3.54 per unit is a direct burden on the consumers of the state and is an unwanted, unjustified and windfall gain to the project developers," it said in the petition.